As the news swirls around Wall Street, analysts think a possible merger between Alcatel Alsthom of France and Lucent Technologies Inc. may not only be the biggest acquisition of a U.S. telecom company, it could also generate an investigation as to whether such an acquisition could put in foreign hands technologies with national security implications.
Analysts also think that such a deal is part of a globalizing trend that has affected other industries, including the automobile, entertainment and pharmaceutical moguls.
A Lucent-Alcatel combination may blaze a trail that could put the globalizing fever up a notch, according to analysts.
“The U.S. is one of the big markets,” stressed Marc Liggio, vice president broadband research for Allied Business Intelligence. “And the U.S. also is a big market for advanced technologies.”
The report, first published in The New York Times, said Alcatel was holding talks to acquire Lucent for a little more than $40 billion in an almost all-stock purchase.
Reports of a possible acquisition have swirled around Wall Street in fits and starts for more than a month with both Alcatel and Nokia Corp. reported to be making buyout overtures. Both companies denied the speculation then.
Both Lucent and Alcatel have offered no comment on The New York Times report.
According to the report, the merger could take place as soon as early June and would represent about 20-percent premium over Lucent’s current value of $33.5 billion. Alcatel is valued at $39.5 billion.
Alcatel has been mentioned as one of five companies bidding for Lucent’s fiber-optic unit. The other companies are Furukawa Electric Co. of Japan, Pirelli of Italy, JDS Uniphase and Corning Inc.
A Lucent-Alcatel merger could be the telecom equipment equivalent to what Deutsche Telecom is doing with VoiceStream Wireless Corp. on the operator level, which has crossed the legislator’s hurdle.
Investment firm Equity Research thinks any Alcatel-Lucent tie-up may have to answer to the Committee on Foreign Investment in the United States because of Bell Labs, a part of Lucent and birthplace of technologies like the transistor and laser that have assured the United States’ pre-eminent position in technology.
“It is difficult to evaluate whether those projects would cause CFIUS to turn down the deal,” the firm said a statement, “as those with the right level of clearance will obviously not discuss the nature of the work. Thus, we cannot make any call as to whether the transaction would meet resistance from CFIUS.”
Liggio does not see the technology issue as a compelling reason for Alcatel to make moves on Lucent.
“It’s possible they are eyeing patents in the lab,” he observed. “But Alcatel has good labs.”
Equity Research, however, expects the possible merger to cross any antitrust or regulatory hurdles. It says such a deal would not have an antitrust block, “with particular attention to sub-markets.”
Comparing the deal to the resolved VoiceStream-Deutsche Telecom debacle, it noted, “We are unaware of any FCC-issued licenses that Lucent, unlike VoiceStream, owns that would be subject to a transfer-of-control review.”
Noting that the deal keys into the globalizing tendency among big corporations, Liggio said that Alcatel is encouraged by the recent deregulation in the European market, which has generated cash flow and spurred the economies from a fragmented vision to a more global vision.
He said this trend also has involved U.S. companies making forays into European markets, but while the Europeans seek to acquire technologies, U.S. companies have been acquiring footprints and bases of operations.
Lucent was born as a spinoff of AT&T Corp. Bell Labs became part of the company when Lucent was created.
Liggio said Alcatel’s effort could be part of its ongoing efforts to acquire contacts and connections in the United States.
“It will be a great drain and distraction for Alcatel,” said Liggio. “I don’t see what they are going to get out of it.”
He said Lucent has sold off Avaya, its enterprise units, which might have been viable. He also noted that Alcatel has a viable fiber-optics business.
He noted that the deal, which drove up Lucent’s share price in the market and sent Alcatel’s downhill, could increase the cost of acquiring the company.
Alcatel may want Lucent assets to augment its $7.1 billion acquisition of switch maker Newbridge Networks of Canada and optical equipment maker DSC Communications in Dallas, noted analysts.
Lucent has been riddled with problems ranging from managerial miscues to technology failures, which led to plummeting shares, lawsuits and management turnovers.
In its optical networking perspective, Lucent has trailed rivals Cisco Systems Inc. and Nortel Networks. Lucent has cut about 10,000 workers and has been rumored to be on the brink of bankruptcy in spite of credit lines of $6.5 billion. Lucent has denied any bankruptcy rumors.
